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Chinese partnership

Chinese negotiators tend to shift from guanxi-seeking partner to cut-throat competitor mode when confronted with an unpredictable counter-party.

Chinese negotiations usually follow one of two paths – towards long-term partnership or one-off competition. What’s the difference? You are. If a Chinese counter-party feels that he can do better as a long-term partner, that’s what he’ll go after. If he feels that you won’t honor the terms and obligations of a durable & profitable relationship, he’ll go for your throat.

Chinese institutions are known for their long memories, and well after members of the new administration have forgotten their twitter tirades and decided to “move on and get on with business,” American firms will still face increased scrutiny, hostility, and non-economic barriers.

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Negotiating in China means talking about the relationship. (Sorry guys.)

Western businesspeople already know that to do business in China you have to have a relationship. This is the whole basis of guanxi and harmony. The problem is the way Americans and Chinese view relationship. To us Westerners, “relationships” are emotional – they are a matter of personal chemistry. We hear the word relationship and we think of family, romance, marriage, and friendship. In China relationships are regarded differently. They are more like a due diligence investigation – and you definitely have to negotiate for access and openness.

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Chinese negotiators can be chess-match slow, or lightning fast. The pace of your Chinese counter-party says a lot about your deal and relationship.

A Chinese negotiator approaches each deal with two options in mind. His Plan A is a long-term relationship that will bring him many profitable transactions over a long time. He knows that this will require a lot of time and effort, but this is the Chinese recipe for success, and he considers the investment of time, effort and patience to be standard operating procedure. Plan B is a one-off, win-lose transaction. One-time deals may not be the cornerstone of his strategy, but normal business operations require plenty of non-strategic transactions. Since he doesn’t plan on seeing the counter-party again, he should maximize profit immediately. Often that means lower quality production, inferior materials and little or no service.

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Your strategy becomes my tactics – but you have to stay in control of HOW and WHEN

We’ve been talking about the importance of developing good strategies and understanding where strategy ends and tactics begin. I’m using a simple but workable set of definitions — strategies deal with goals, asset development & allocation, and longer time frames. Tactics are methods for reaching goals, deal with spending or earning, and usually take place within a shorter time horizon.

Strategies should be developed at the Board or CEO level, and integrate on a global level. Tactics must support and address your global strategy, but have to be adjusted for local business envirnoments and current economic realities.

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Uncovering the Chinese side’s true agenda. Method 1: Ask Them.

Chinese negotiators pride themselves on being subtle and cunning. Military and business traditions in China extoll the virtue of misdirection and multi-faceted strategies that obscure one’s true motives. Unfortunately for western negotiators, this makes it very difficult to craft effective deal proposals. It’s hard to be win-win with a counter-party who won’t reveal what a win looks like.

Westerners, however, must shoulder part of the blame for the communications-gap that plagues cross-border communication. Sometimes we don’t do the homework, our language skills are famously bad, and we have a bad habit of trying to shoehorn western business models into a Chinese business environment.

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In the West, negotiation is the prelude to business. In China, negotiation IS the business.

Westerners have to stop fighting the clock when negotiating in China. It is killing us. Every time you tell your Chinese counterparty when you are returning home, you give away all of your power. They know your self-imposed deadline – and they know your HQ expects you to return with a signed contract. This does not make for a powerful negotiating position. Make your own travel arrangements, be vague about your schedule, and if you can fix it so that you are going to another city in China after you leave them, then so much the better. Remember – Chinese negotiators are more afraid of you teaming up with another Chinese business than going it alone.

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The trade relationship will grow incrementally more challenging and MNCs may finally air their grievances in public.

2014 will be challenging for international negotiators in China, but not particularly unstable or erratic. An unsettled economy in China will bring out protectionist impulses in Beijing bureaucrats, who will be increasingly defensive and conservative about what happens within their borders while at the same time becoming more ambitious and assertive in their dealings abroad.

Access to the the Chinese market will become a touchier issue for deep-pocketed MNCs, who will exhibit a greater willingness to go public with their complaints about market access to China — and may even mobilize connections at home to limit Chinese access to western markets. China in 2014 will continue its trend of greater nationalism, protectionism and defensiveness, but shouldn’t hold too many surprises for experienced international businesses. Savvy negotiators will find ways to turn bureaucratic heavy-handedness to their own advantage by offering Chinese partners help moving offshore to more attractive, less restricted markets.

Coasting on past successes or good starts is a terrible idea when doing business in China. Successful business negotiation in China is about developing good goals and staying focused on business objectives while building cordial relationships. There is no auto-pilot switch in China – during the negotiation process or when working with long-term partners. The more successful you are, the more problems you’ll have. Whether you have been doing business with Chinese associates for years or are negotiating your first deal, you can’t take anything for granted. Americans start off as tough guys and gradually build a relationship. Chinese start off with a relationship and get tough when it serves their purposes.

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Western negotiators in China can lower their risk with smarter negotiation techniques.

Negotiating in China used to be about reducing costs, but since the crash of 2008 it has been about accessing the market and integrating supply chain. Since both of these goals require substantial and long-term commitments, the job of negotiators in China has fundamentally changed. Nowadays, negotiating in China is about reducing risk.

Rule Number 1: business intelligence is your responsibility. Not your counter-party, supplier, partner or even key staff. You don’t have to have all the answers, but you do have to know the right questions — and have some way of assessing the answers you are getting. That is not something you’ll grow into or pick up over time. If you are too busy to learn about China and develop your own channels of business intelligence and market information, then you are simply too busy to succeed in China. It IS that simple.

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MNCs in China have always negotiated differently than WFOEs or JVs.

When it comes to negotiating in China SMEs and entrepreneurs shouldn’t be scared off by the troubles of Glaxo or Sanofi – necessarily. The headline problems are more politics than business – and that is a different kind of negotiation. Whether you are an owner, department head or front-line negotiator – your job is to keep your head down, appear Chinese enough to win market acceptance, and stay in control of quality and HR. Keeping an eye on the bottom line is much easier, however, when you aren’t looking over your shoulder to see who is coming after you.